Major step forward for new WA mineral sands mine as China group agrees to complete DFS

Diatreme Resources has had a major jump on the back of this announcement – share price up 114% on massive volume – one to watch!

In a major step forward for a new WA mineral sands mine, Diatreme Resources (ASX:DRX) announced the signing of the necessary agreements for leading Chinese mining services company, China ENFI Engineering, to complete a definitive feasibility study (DFS) for Diatreme’s Cyclone Zircon Project in the Eucla Basin.

Diatreme and ENFI have signed two agreements, comprising a Cooperation Agreement, under which ENFI will use its network within China’s state-owned enterprise and banking sectors to assist in sourcing project investors, offtakers and project debt funding; and a Consulting Services Agreement, detailing the remaining aspects of the DFS to be completed by ENFI. The timeframe for completion is estimated at five months.

Commenting on the agreements, Diatreme’s Chairman, William Wang said: “This is a historic day, not only for Diatreme but also for Australia’s mineral sands industry. We are delighted to be working with a company of the size and expertise of ENFI as we advance our flagship project towards mining, for the benefit of all stakeholders.”

Replacing the previous non-binding Memorandum of Understanding announced on 11 September 2017, Diatreme and ENFI have signed two contracts comprising:
• A Cooperation Agreement, under which ENFI will use its network within China’s state-owned enterprise (SOE) and banking sectors to assist in sourcing project investors, offtakers and project debt funding;
• A Consulting Services Agreement, detailing the remaining DFS aspects to be completed by ENFI, including project costings and economics, engineering studies and implementation planning.

Timeframe for DFS completion is estimated at five (5) months.

Commenting on the agreements, Diatreme’s Chairman, William Wang said: “This is a historic day, not only for Diatreme but also for Australia’s mineral sands industry. We are delighted to be working with a company of the size and expertise of ENFI as we advance our flagship project towards mining, for the benefit of all stakeholders.”

ENFI is backed by one of China’s largest state-owned enterprises (SOEs) involved in the mining services sector, being a wholly owned subsidiary of Metallurgical Corporation of China, part of the China Minmetals Group. Headquartered in Beijing, China Minmetals has 1.6 trillion renminbi (A$314 billion) in total assets and ranked 120th in the Fortune Global 500.

The support of ENFI’s commercial and Chinese SOE networks is expected to be crucial in securing the necessary project partners for Cyclone, including investors, offtakers and providers of project debt funding. ENFI has also been provided with the necessary Cyclone project information to undertake the outstanding items of the DFS, which when completed will provide lenders with the level of confidence required to finance the mine’s development. The agreements with ENFI follow Diatreme’s successful de-risking of its flagship project, with the issuing of final environmental approvals from the Western Australian Government in January 2017, along with the determination of a suitable water supply, agreement with the Native Title holders and award of a Mining Lease.

Recent market commentary and analysis by industry researchers TZMI has pointed to increasing demand for heavy mineral sands such as zircon, along with constrained supply, which should ensure Cyclone comes into production amid a favourable pricing environment.

In September, major producer Iluka Resources increased its zircon reference price to US$1,230 per tonne, with analysts suggesting zircon prices will exceed US$1,300 in 2018. Research by Deutsche points to both zircon and titanium dioxide rising by a further US$100/t in 2018, amid improved demand from China’s construction sector and in other emerging economies.

“The agreements with ENFI represent the final push forward for our Cyclone project, with the potential for first production by the end of the decade in an environment of rising prices and constrained supply,” said Diatreme’s CEO, Neil McIntyre.

“We now have the right technical partner in place to deliver the right project at the right time, securing
increased value for our loyal shareholders.”

CYCLONE ZIRCON PROJECT
De – Risking Process

The Cyclone Project, following an extensive work and regulatory program has now been effectively de-risked following final grant of the environmental licence. The de-risking process has mitigated key project risks identified in the PFS and during the early stage of the DFS. DRX can now move confidently towards completing final aspects of the DFS, subject to market conditions remaining favourable, with the knowledge and comfort provided by the de-risking process.

In summary, the key risks that have been mitigated and related management measures are listed below:

3?4 Water Supply – Water supply discovered and test bore completed at the Cyclone mine site
(refer ASX announcement 11 November 2013); detailed water supply design to be completed in
the DFS.

3?4 Native Title and Mining Agreement – Agreement executed with the Native Title holders on 15 November 2014 (refer ASX announcement 17 November 2014). Mining Lease – Granted by the WA Department of Mines and Petroleum on 18 November 2014 (refer ASX announcement 24 November 2014).

3?4 Mine Life – Acquisition of Cyclone Extended has increased the mine life to 14 years at a mining rate of 10 million tonnes per year (refer ASX announcement 14 December 2015).

3?4 China ENFI Agreements – Signed in January 2018, under which one of China’s largest mining services providers will undertake the remaining aspects of Cyclone’s commercial studies to DFS standard, while also assisting in sourcing potential project investors, offtakers and project lenders.